AT&T plans to pay $2

Finance Dec 24, 2020

AT&T plans to pay $2.08 per share in dividends in the coming year. If its equity cost of capital is 8%. Dividends are expected to grow by 3% per year in the future. Estimate the value of AT&T’s stock.

Expert Solution

Value of AT&T’s stock=D1/(equity cost of capital-growth rate)

Value of AT&T’s stock=2.08/(8%-3%)=2.08/5%=41.60

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